If you bought certain property during 2003 to use in your business, you can do any one of the following (subject to the limits discussed later).
Elect a section 179 deduction for the full cost of the property.
Depreciate the full cost of the property.
Take part of the cost as a section 179 deduction and depreciate the balance.
Section 179 Deduction
You can claim the section 179 deduction for the cost of depreciable tangible personal
property bought for use in your trade or business. You can choose how much (subject to the
limit) of the cost you want to deduct under section 179 and how much you want to depreciate.
You can spread the section 179 deduction over several items of property in any way
you choose as long as the total does not exceed the maximum allowable. You cannot take
a section 179 deduction for the basis of the business part of your home.
You elect the section 179 deduction by completing Part I of Form 4562.
More information.
For more information on the section 179 deduction, qualifying property, the dollar limit,
and the business income limit, see chapter 2 in
Publication 946 (pdf).
Depreciation
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You may be entitled to take a special depreciation allowance for qualified property or a Liberty Zone depreciation allowance for Liberty Zone property you purchase and place in service during 2003. The allowance is an additional deduction of 30% of the property's depreciable basis. For certain qualified property acquired after May 5, 2003, you may be able to take a 50% special depreciation allowance instead of the 30% special depreciation allowance. For more information, see chapter 3, "Claiming the Special Depreciation Allowance (or Liberty Zone Depreciation Allowance)" in Publication 946 (pdf). |
Use Parts II and III of Form 4562 (pdf) to claim your deduction for depreciation on property placed in service during the year. Do not include any costs deducted in Part I (section 179 deduction).
Most business property used in a home office is either 5-year or 7-year property under MACRS.
5-year property includes computers and peripheral equipment, typewriters, calculators, adding machines, and copiers.
7-year property includes office furniture and fixtures such as desks, files, and safes.
Under MACRS, you generally use the half-year convention, which allows you to deduct a half year of depreciation in the first year you use the property in your business. If you place more than 40% of your depreciable property in service during the last 3 months of your tax year, you must use the mid-quarter convention instead of the half-year convention.
After you have determined the cost of the depreciable property (minus any section 179 deduction and special depreciation allowance taken on the property) and whether it is 5-year or 7-year property, use the table, shown next, to figure your depreciation if the half-year convention applies.
Table 3. MACRS Percentage Table
| Recovery Year | 5-Year Property | 7-Year Property |
| 1 | 20.00% | 14.29% |
| 2 | 32.00% | 24.49% |
| 3 | 19.20% | 17.49% |
| 4 | 11.52% | 12.49% |
| 5 | 11.52% | 8.93% |
| 6 | 5.76% | 8.92% |
| 7 | 8.93% | |
| 8 | 4.46% |
See Publication 946 (pdf) for a discussion of the mid-quarter convention and for complete MACRS percentage tables.
Example.
In June 2003, Donald Kent bought a desk and three chairs for use in his office. His
total bill for the furniture was $1,975. His taxable business income for the year
was $3,000 without any deduction for the office furniture. Donald can elect to do
one of the following.
Take a section 179 deduction for the full cost of the office furniture.
Take part of the cost of the furniture as a section 179 deduction and depreciate the balance.
Depreciate the full cost of the office furniture.
The furniture is qualified property for purposes of the 50% special depreciation allowance and 7-year property under MACRS. Donald does not take a section 179 deduction. He multiplies $1,975, the cost of the furniture, by 50% to figure his special depreciation allowance of $988. His depreciable basis after the special allowance is $987 ($1,975 – $988). He then multiplies $987 by 14.29% (.1429) to get his MACRS depreciation deduction of $141.04.
Business Furniture and Equipment
Listed Property
Property Bought for Business Use
Personal Property Converted to Business Use
Information courtesy of the Internal Revenue Service.
